(2010-04-02) Lewis Gold Unreserved

In Jan'2009 Nathan Lewis discussed buying Gold bars via Com Ex and taking delivery to an independent depository. And: For quantities of less than 100oz., I would start to look at 1oz. coins like Krugerrands or Eagles. These have had a rather nasty premium to Comex gold recently -- as high as 30%. However, the premiums have come down a bit. I think that individuals who own hundreds of coins are selling them for a premium and acquiring Comex bars at lower prices. If you can find coins with a premium of 10% or less, I'd look into it. 5% is not bad. The premiums for Krugerrands used to be about 1%, if you are wondering. Keep coins somewhere safe and secret -- NOT a bank safe deposit box... I still think that Bullionvault (bullionvault.com) and Goldmoney (goldmoney.com) are superior to any form of paper gold, including ETFs, futures, Perth mint certificates, etc. etc. They are relatively cheap, liquid, and have lower transaction costs. However, there is something to be said for owning real metal directly.

  • He also pointed to this RobertKLandis warning from 2007 about GLD SPDR paper. The same features that prevent it from ever becoming money, prevent it from realizing its full potential as a safe haven investment. More troubling still, we see reason to worry about the safety of the underlying metal, given the neighborhood where it is stored.

In Jun'2009 he raised bigger questions about the existence of Com Ex gold. First, there are indications that the seller side of futures contracts (such as Deutsche Bank in April) are having a difficult time making good on their commitments. Second, the information reported by the Comex regarding physical inflows and outflows is looking more and more like a convenient fiction. Third, there is some doubt as to whether there is gold in inventory -- as there absolutely should be -- to match existing warehouse receipts. Fourth, the Comex warehouse is one of the most secure forms of gold investment in the world. If they can't be trusted, what does that say about ETFs, pooled accounts, futures, forwards, options, and all the other forms of "paper gold" out there? Fifth, if it becomes clearer that there is no physical supply to meet physical demand, the dollar price of gold could go much higher.

Now he concludes that lots of Gold "paper" (and Silver) isn't actually represented by bullion. For many years, people assumed that the London Bullion Market Association (LBMA), the world's largest gold market, was a simple bullion market. Cash for gold. However, just in the past few months, more people are realizing that there is actually very little gold within the LBMA system... During the CFTC hearings, Jeffrey Christian of CPM Group apparently informed us that the LBMA banks actually have about a hundred times more gold deposits than actual gold bullion... Morgan Stanley paid several million dollars in 2007 to settle claims that it had charged 22,000 clients for storage fees on silver bullion that didn't exist... What about things like ETF-s linked to gold? Most of them also claim, as assets, these "deposits" at the LBMA banks. Conspiracy Theory?

There is an easy way to sidestep all the scams, frauds, and phony nonsense. Take delivery on your bullion, whether a 1 oz. Kruggerand or a truckload of 400 oz. institutional bars. Put it in an independent, insured depository that is not affiliated with any bank. Assay all the holdings for tungsten counterfeits. Then audit it periodically, for exact serial numbers and specified weights.

Aug update: hmm, what if I want to do this with an IRA/401k account? Nathan pointed me at Usa Gold.

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